Citing data from the Bank of Korea, Professor Park shows that the
outstanding household debt in Korea during the third quarter of 2016 was
1,295 trillion won (around $1.08 trillion). During the third quarter
alone, the debt increased by 38 trillion won (around $31.65 billion),
representing the highest quarterly increase in household debt since the
Bank of Korea began tracking it. Professor Park calls it "a time
bomb with an unknown detonation date."

Clearly, excessive household debt can be a serious threat to the
Korean economy. The question then relates to what constitutes excessive
household debt. If my monthly payment on debt is $10,000, but my monthly
income is $100,000, my debt would not be considered excessive. On the
other hand, if my monthly payment on debt is $1,000, but my monthly
income is $2,000, my debt should be considered excessive.

Professor Barbara O'Neill of Rutgers University excludes
mortgage debt in defining "consumer debt" which thus consists
of "outstanding balances on credit cards, installment loans for
cars and other 'big ticket' items (that is, furniture and
appliances), and student loans." Professor O'Neil suggests
calculation of the consumer debt to income ratio "to determine if
your consumer debt obligations are out of line for your
income."

In calculating the debt to income ratio, monthly payments on
mortgage, rent, utilities or taxes should not be counted as debt, while
income should be after-tax net spendable income. Professor O'Neil
warns that if the consumer debt-to-income ratio reaches 20%, your
finances are considered to be in the "danger zone."

From the view of the national economy, a better indicator may be the
total debt to income ratio per person in which debt includes their
mortgage payment. Note that the Great Recession of 2008 began with abuse
and fraud relating to mortgage-backed securities.

According to my calculations, the debt to income per person in Korea
is approximately 0.8 or 80 percent. I calculated this by dividing the
total debt of $1.08 trillion by 50 million, which is the population in
Korea. I then divided the outcome by $25,000, which approximates income
per person in Korea. Is the 80 percent dangerously high?

An April 2012 IMF study by Daniel Leigh, Deniz Igan, John Simon, and
Petia Topalova indicates that during the five years preceding the onset
of the Great Recession, the household debt to income ratio in advanced
economies "rose by an average of 39 percentage points, to 138
percent." In absolute value, Korea's 80 percent debt to income
ratio does not look too bad. In terms of the rapid increase in the ratio
in recent years, Professor Park is correct in saying that now is the
time to address the issue.

Professor Park also states that the composition of household debt in
Korea is even more worrisome in that the major increase in recent years
has occurred in non-banking loans that carry higher interest rates and
are likely to be borrowed by those with comparatively low credit
worthiness.

The potential danger of Korea's household debt has not been
addressed for many years since the Korean government acted in NIMTO (Not
In My Term of Office). What can be done to lower the danger of the
potential blow-up of Korea's household debt issue? I do not know
what the solution is. Policy makers are criticized for being anti-growth
if borrowing is made difficult, and criticized for making the debt
problem worse if borrowing is made easy.

I wonder how many of you have truly experienced financial
difficulty. If you need money, you are likely to ask friends and
relatives for loans. If that does not work, you may go to a bank to
borrow money. If you do not have credible collateral, bankers will tell
you to go to day loan or title loan places. If you are really in bad
shape, day loan and title loan companies will tell you to go to a bank,
fully knowing that banks would not lend you money.

If you are really in bad shape financially, there is one more
problem. Laura M. Argys, Andrew I. Friedson, and M. Melinda Pitts
published a study titled "Killer Debt: The Impact of Debt on
Mortality" in a U.S. Federal Reserve Bank of Atlanta Working Paper
2016-14, published in November 2016. Based on data for 170,000
individuals, they analyzed the effect of individual finances,
specifically credit worthiness and severely delinquent debt, on the risk
of mortality.

Their conclusion is that "debt resulting from a financial
crisis has lasting effects on health that are substantial enough to
increase mortality rates," and "financial policies are health
policies: the effect of individual finances on mortality is
non-trivial." Stated simply, too much debt may actually kill
you.

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